The bells are ringing for the British economy

The bells are ringing for the British economy
Concerns about the UK economy have been released and some developments in the retail sector continue to increase.

The UK economy continues to grow under expectations in the first quarter of this year and continues to raise concerns about the UK economy that many chains in the retail sector have to shut down.

At the beginning of this year, the Bank of England (BoE) is expected to see an increase in policy interest rates in May, while a new picture follows the announcement of the first quarter growth in the country.

The Monetary Policy Committee of the Bank of England (MPC) met on May 8th and voted for two with seven votes to keep the policy rate at 0.50 per cent. In order to be able to see the underlying causes behind this decision, we have to look closely at the last one.

According to data from the National Statistics Office (ONS), the UK economy could only grow by 0.1 percent in the first quarter of this year. However, in the last quarter of last year economic growth was at the level of 0.4 percent. Although the economic growth in the first three months of this year has been below expectations, it has been partly contributed to the fact that seasonal conditions were somewhat harder in winter than in the previous months, but it is possible to say that signs of deterioration in the British economy, particularly in the last few months, are visible.

“We see that the British economy has recorded its lowest growth rate for more than five years,” said ONS Specialist Rob Kent Smith, who evaluates growth data. The manufacturing sector has weakened, consumer demand has paused, construction production has declined at a remarkable level. ”

Moreover, the latest data on the service sector, which represents more than two thirds of the country’s economy, also came under expectations. According to Markit / CIPS data, the UK service sector purchasing managers index (PMI) stood at 52.5 in April, below expectations of 53.5.

Chris Williamson, chief economist at IHS Markit, said, “After the disappointing PMI data in the services sector, members of the Monetary Policy Committee of the Bank of England (BOE) will slowly pull their hands out of the interest rate push.”

“The British government needs to lift the weak economy again”
For now, the expectations of the Bank of England interest rate hikes seem to have been delayed for a while.

Only three months ago, the Bank of England had predicted an economic growth of 0.4 percent in the first quarter of this year and 1.8 percent in the whole of this year. On the other hand, the latest growth forecast for the bank this year is 1.4 percent, as data have remained below expectations in recent months.

Frances O’Grady, Secretary General of the UK Trade Union Union (TUC), said, “You can not kick the economy on the ground. Now the British government needs to lift the weak economy again, raise employment and real incomes. ”

In the UK, on ​​the other hand, the sharp depreciation of the British pound, high inflation and relatively low real income growth since the European Union (EU) referendum held in June, 2016, continue to push household spending. Nevertheless, the inflation rate of household income shows a positive trend as of March.

In the UK, inflation in March remained below expectations of 2.7 percent year-on-year, showing an increase of 2.5 percent. In addition, revenue growth in the first three months of this year was 2.8 percent. The most significant increase since September of 2015 was recorded by March data on real income growth. In fact, it is possible to say that the Bank of England has some courage. The Bank of England is currently keeping the inflation target at 2.0 percent. If inflation can be attracted to this level in the upcoming period and if households can be kept above the 2.8 percent band as in March, then both equilibrium and possible interest rate hikes will arise.

Another important area that needs to be closely monitored in the UK is the retail sector.

Sales in the retail sector have decelerated
Sales in the retail sector have slowed significantly in 2017 compared to the previous year. Sales in the retail sector increased by only 1.9 percent last year, up by 4.7 percent in 2016.

Famous retail chains in the country are having a difficult time, such as changes in consumer demand, depreciation of the British pound, increase in imported product prices, and inability to sustain competition in production and procurement costs.

According to a survey conducted by the Local Data Company (LDC) for PricewaterhouseCoopers (PwC), 5,855 stores closed last year in the UK. Approximately 1,700 of the shops that are closed constitute stores belonging to retail chains.

According to a report issued by the Moore Stephens accounting firm in central London in February, 19 per cent of textile companies in the UK are facing financial difficulties. Of the 35 thousand 78 companies surveyed, 6,850 are financially troubled.

Following the 1.20 percent growth in Germany in 2016 and the second fastest growth in developed economies with 1.8 percent, Britain recorded the lowest growth rate among the G-7 countries with 1.7 percent growth at the end of last year .

In short, similar developed economies are having difficulty in increasing their current share of the UK economy, while getting their share of the growing global growth momentum. In total, domestic political tensions, the Brexit agenda, postponement of investments, changes in consumer confidence, differentiation in spending dynamics, and uncertainties in the UK economy continue to increase.